PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Reminder for 2023: Washington Needs to Support, Not Undermine, U.S. Technology Leaders

By at 13 January, 2023, 5:27 pm

SMALL BUSINESS INSIDER

by Raymond J. Keating –

Politics often strays from economic reality. That’s certainly the case with Washington’s crusade against so-called “Big Tech” – from Democrats attacking leading U.S. technology companies because of default anti-big-business politics, to some Republicans who wish to use big government to bash companies with whom they have real or perceived differences.

Some of these policy attacks will continue into 2023. As noted recently by Senator Amy Klobuchar (D-MN) in a media release, she will continue to push her misguided “American Innovation and Choice Online Act” in the 118th Congress.  And in a Wall Street Journal Op-ed, President Biden warned about “the risks Big Tech poses for ordinary Americans” and urged bipartisan action to rein in “dominant incumbents” (After praising the industry for being “the most innovative in the world.”)

Politics and Ideology are Undermining U.S. Tech Leadership

Whether via proposed legislation, congressional hearings, and/or antitrust and other forms of regulation and mandates, anti-Big-Tech efforts make no sense given economic and market realities. Those include the fact that big businesses, whether in tech sectors or elsewhere, aren’t monopolies, nor can they afford to act like they are given the dynamism of the market, including facing current, emerging or future competitors. The need for constant innovation is clear.

For good measure, why in the world are U.S. politicians actively undermining leading U.S. companies in the international marketplace? Most politicians talk about the need for the U.S. to better compete, and then many of those same elected officials work to actively weaken U.S. competitiveness.

Indeed, there are many reasons why the White House and Congress should give their bizarre and costly wars against U.S. technology leaders, including the negatives for entrepreneurs and small businesses.

Small Businesses are Collateral Damage in this War on Big Tech

No one should be surprised when regulatory and legislative actions targeted at large businesses wind up hitting small businesses hard. Consider key consequences for entrepreneurs and small businesses if this political attack on tech firms continues as pointed out in various recent SBE Council analyses.

Damage to the Startup Ecosystem

● SBE Council has noted the fallout for smaller businesses regarding the Federal Trade Commission’s efforts to challenge Meta’s acquisition of VR (virtual reality) startup Within Unlimited, Inc. and to block Microsoft’s acquisition of the video game Activision Blizzard. As summed up in that analysis:

“…the collateral damage in war can be severe, and to the extent that this regulatory war on so-called big business damages the U.S. entrepreneurial ecosystem, the ills will spread far and wide given the central role that entrepreneurship plays in economic, income and job growth. What signals are the Biden-Khan war on so-called big business sending to entrepreneurs and the investors that finance startups and small business growth? It’s pretty clear: Government must have pre-approval for mergers and acquisitions. And again, keep in mind that while these cases focus on the tech arena, the implications are clear for whatever industries happen to strike the fancy of regulators. And it must be understood that mergers or acquisitions are vital for entrepreneurs and their investors in terms of exit strategies.”

● That SBE Council piece also offered additional important specifics:

“In an analysis of the Meta-Within case, the Information Technology and Innovation Foundation made a critical point: ‘In 2020, nearly 90 percent of all venture-backed startups exited their venture-funding through an acquisition. The looming threat that this exit strategy may no longer be available, or will face costly litigation, will limit the ability of small studios to access venture capital and thereby reduce VR app innovation.’ This type of regulation, while said to be about promoting competition, actually winds up protecting established firms, while limiting opportunities for entrepreneurs. After all, the enormous risk and uncertainty that comes with this kind of regulatory activism will limit investment in smaller entrepreneurial firms that already face significant market risks and uncertainties, as the opportunities for returns would be controlled, at least in part, by the whims of regulators.”

● In another recent analysis, SBE Council looked at the FTC Democratic majority’s policy statement altering the interpretation of Section 5 of the Federal Trade Commission Act dealing with “unfair methods of competition,” which amounted to dressing up a gross regulatory overreach that ignores basic economics and that undermines the rule of law. Among the many points raised was the following:

“…innovation dies at the hands of hyper-regulation and controls by government, as entrepreneurship and investment are disincentivized, and innovation evaporates accordingly. For good measure, we know regulation of “mergers or acquisitions of a potential or nascent competitor,” that is, putting a halt or a limit on such acquisitions, will harm entrepreneurial firms, as they would, again, face far greater difficulties in attracting investors. Make no mistake, acquisition is a major avenue for entrepreneurs and investors to achieve returns on investment. In turn, of course, this would actually limit emerging and future competitors, and serve as a kind of ironic and perverse government protection for large established firms.”

 Higher Costs and Damaging Effects on Customer Acquisition and Communication, Business Operations

● SBE Council also has reported that “it should surprise no one to learn that assorted recent studies find that the ‘American Innovation and Choice Online Act’ (AICOA), an antitrust-rooted attack on ‘Big Tech’ pushed by U.S. Senator Amy Klobuchar (D-MN), would inflict significant harm on small business and innovation,” including increased costs, reduced opportunities and greater uncertainty.

● In an open letter to Congress, SBE Council spelled out assorted problems that small businesses have with the attack on “Big Tech,” including:

– “Throughout the pandemic and up until now, technology platforms and digital tools have been critical assets for small businesses, not millstones holding them down as “big-tech” antagonists claim. That is why small business owners and startup entrepreneurs are quite wary of big-tech legislation, such as the “American Innovation and Choice Online Act” (AICOA – S. 2992, and its U.S. House counterpart H.R. 3816), as well as various actions the federal government may take to arbitrarily punish America’s biggest technology leaders. AIOCA would vastly change how a handful of large U.S. technology companies are allowed to operate, which would lead to the likely gutting of valuable digital services used by small businesses, or adding new costs to some of the free or low-cost tech services and tools that entrepreneurs and their employees use every day.”

– “The results of SBE Council’s new “Small Business Policy and the Economy Survey” make it clear that small business owners know what’s at stake if far-reaching bills such as S.2992/H.R. 3816 were advanced into law, and what the intended and unintended consequences would mean for their businesses. In our survey, 75% of small business owners say that digital tools and platforms are important to the success and growth of their businesses. Given small business worries about inflation, the possibility of a recession (88% say one is coming), and disorderly supply chains, the last thing entrepreneurs need is disruptive policy that will slow sales and hurt revenues – 55% express worry that legislation and regulatory efforts targeting big tech would negatively impact business sales and operations, and the broader economy.”

– “…pandemic startups are a bright spot for our economy and its competitiveness. They also happen to be highly reliant on technology and technology platforms, as noted in our ‘Pandemic Startups’ survey released in early spring. These startup entrepreneurs are quite wary of big-tech policies – 61% of startup entrepreneurs expressed concern that that these anti-trust/regulatory actions would negatively affect their businesses.”

As SBE Council President & CEO Karen Kerrigan summed up in that open letter: “Big-tech legislation and radical regulatory intervention are not priorities for our nation’s small businesses. Moreover, these efforts would trigger risky and costly disruption within the digital ecosystem that would fall disproportionately on startups, small businesses and their employees.”

This is a message SBE Council will continue to deliver to members of the 118th Congress and to the regulatory agencies that seem to be working overtime to undermine America’s innovative leadership, and by extension entrepreneurship and small business success.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.

 

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